Uribe Notes Part 2

SALES Articles / Laws to Remember: 1458, 1467, 1477 transfer of ownership, 1505, 559 who can transfer xxx, 1504, 1544, 1484 Recto Law, R.A. 6552, 1602, 1606, 1620, 1623, Redemption xxx Q: A obliged himself to deliver a certain thing to B. Upon delivery, B would pay a sum of money to A. Is that a contract of sale? A: Not necessarily. Even if there is an obligation to deliver, if there is no obligation to transfer ownership, it will not be a contract of sale. It may be a contact of lease. Memorize: Art. 1458 Note: Sale is a contract, so the general principles in oblicon are applicable to sale but note that there are provisions which are contrary. Characteristics of Contract of Sale (COS) 1. Consensual (1475) – COS is consensual, it is perfected by mere meeting of the minds of the parties as to the object and price. Note: There is 1 special law which requires a particular form for the validity of a contract of sale – in that sale, it can be said that kind of sale is a formal contract → Cattle Registration Decree. In a sale of large cattle, the law provides that the contract of sale of large cattle must be: in a public instrument, registered and a certificate of title should be obtained in order for the sale to be valid. But otherwise, the other contracts are perfected by mere consent or mere meeting of the minds. 2. Principal – sale is a principal contract, it can stand on its own. It does not depend on other contracts for its existence and validity. 3. Bilateral (1458) – necessarily in a COS, both parties will be obligated. It is not possible that only 1 party is obligated because a contract of sale is essentially onerous.

2. Dation in Payment (DIP) vs. COS 3. Contract for a Piece of Work (CPW) vs. COS 4. Barter vs. COS 5. Agency to Sell (ATS) vs. COS Deed of Absolute Sale (DAS) vs. Conditional Sale (CS) vs. Contract to Sell (CTS) DAS – seller does not reserve his title over the thing sold and thus, upon delivery of the thing, ownership passes regardless of whether or not the buyer has paid. CS - condition/s are imposed by the seller before ownership will pass. Normally, the condition is the full payment of the price. In CS, ownership automatically passes to the buyer from the moment the condition happens. There is no need for another contract to be entered into. BE: Receipt was issued by A to B. The receipt’s tenor “Date of the receipt xxx Received from B the sum of P75,000.00 as partial payment for the car xxx the balance to be paid at the end of the month xxx”. Contract to Sell? SA: No. It does not pertain to a CTS because in a CTS ownership is reserved by the seller despite delivery to the buyer. The buyer does not acquire ownership. This is an Absolute Sale. Q: In a CTS, upon the happening of the condition/s imposed by the seller, would ownership automatically pass to buyer? A: No. While a CTS is considered a special kind of conditional sale, it is a peculiar kind of sale because despite the happening of the condition and actual delivery, the buyer does not automatically acquire ownership. In CTS, if condition/s happen, the right of the buyer is to compel the seller to execute a final deed of sale. So ownership does not automatically pass.

4. Onerous (1350) – COS is essentially onerous. Otherwise, it may be another contract or any other act like it may be a donation if there is no compensation for the transfer of ownership to the other party.

Dation in Payment (DIP) vs. COS DIP (1245) – whereby property is alienated to the creditor. It is provided that the law on sales shall govern such transaction. It is specifically provided that the pre-existing obligation must be in money. If not in money and there is DIP, it will not be governed by the law on sales but by the law on novation because practically there is a change in the object of the contract.

5. Commutative (2010) – meaning there is equivalency in the value of the prestation to be performed by both parties. Normally, the thing sold would be equal to the price paid by the other party (buyer).

Example 1: If A owes B P100,000.00 instead of paying P100,000, he offers B and B accepts the car of A as an equivalent performance → this is DIP and will be governed by the law on sales.

Exception: a contract of sale which is an aleatory contract like sale of hope. In sale of hope, the obligation of 1 party will arise upon the happening of a certain event or condition.

Example 2: If the pre-existing obligation is to deliver a specific horse but instead of delivering the horse, the debtor told his creditor and the creditor accepted, that he will instead deliver his car → it is still DIP but it will not fall on 1245 but on novation because there is a change in the object of the obligation which would extinguish the obligation.

Example Sale of Hope: Sale of a lotto ticket, PCSO will have the obligation to pay you only if you got all the 4 or 6 numbers which are drawn

Note: A guide to distinguish one concept from another is to know the nature, requisites and effects.

Another Example of Aleatory: Insurance

1. As to Nature DIP – a special form of payment COS - it is a contract

6. Nominate (1458) Classification of Contract of Sale 1. As to Nature of Subject Matter a. Movable b. Immovable

2. As to Requisites DIP – with a pre-existing obligation COS – not a requirement

Q: Why there is a need to determine? A: Because some concepts will apply if the object is movable or some laws will apply if the object is immovable. Examples: Under the Statute of Frauds, you have to determine if the object if movable or immovable in order that statute of frauds will apply. The Recto law will apply if the object is movable. The Maceda law will apply if the object is realty. Article 1544 or Double Sale will require you to determine the nature of the subject matter. 2. As to Nature a. Thing b. Right Q: Why there is a need to determine? A: Relevant in the mode of delivery Distinctions 1. Deed of Absolute Sale (DAS) vs. Conditional Sale (CS) vs. Contract to Sell (CTS)

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3. As to Effect DIP – to extinguish the obligation either wholly or partially. COS – obligation will arise instead of being extinguished. Contract for a Piece of Work (CPW) vs. COS BE: A team if basketball players went to a store to buy shoes and out of the 10 members, 5 of them were able to choose the shoes. They agreed to pay the price upon delivery. The other 4 members were able to choose but the shoes were not available at that time but they are normally manufactured. The last member could not find shoes that could fit his 16 inches feet and therefore he has to order for such kind of shoes. What transactions were entered into by these players? SA: 1467 → the first 2 transactions involving a total of 9 players would be considered a COS because the shoes which they ordered are being manufactured or procured in the ordinary course of business for the general market. However, the last transaction which will be manufactured only because of the special order of the player and is not ordinarily manufactured for the general market will be considered a CPW which is known as the Massachusetts rule.

Faye Marie C. Martinez – Chato Cabigas – Jessica A. Lopez – Dian Rosapapan November 2008

Massachusetts rule – rule in determining whether the contract is a COS or a CPW. Barter vs. COS Q: A obliged himself to deliver a determinate car with a market value of P250,000.00. B obliged himself to deliver his watch and P150,000.00 in cash. What kind of contract? A: First, you have to consider the intention of the parties. They may want this transaction to be considered as a sale or barter and that will prevail. But if the intention of the parties is not clear from their agreement then the nature of the contract will depend on the value of the watch. If the value of the watch is greater than P150,000 then this is barter. If the value of the watch is equal or less than P150,000 then this is sale. The value of the car is irrelevant. What is only relevant is the value of the thing (watch) in relation to the cash to be given by one of the parties. Agency to Sell (ATS) vs. COS BE: A gave B the exclusive right to sell his maong pants (he has his own brand of maong pants) in Isabela. It was stipulated in the contract that B has to pay the price of maong within 30 days from delivery to B. It was stipulated that B will receive 20% commission (discount) on sale. The maong pants were delivered to B. However, before B could sell the goods, the store was burned without fault of anyone. Can B be compelled to pay the price? From the wordings of the problem you may have an idea that this is an agency to sell. If this is an ATS, the fact that the agent has not yet sold the maong pants when they were burned will not result in a liability on his part, there being no negligence on his part because with the delivery of the thing from the principal to the agent, ownership does not pass. Under the principle in the Civil Code – res perit domino – it will be the seller (owner) who will bear the loss. But if this transaction is sale then with the delivery of the maong pants to B, ownership passed to B because he did not reserve ownership over the pants despite the fact that the other party has not paid the price. So when the pants were burned, it would now be B as the owner who will bear the loss. SA: This is exactly the case of Quiroga vs. Parsons. Article 1466 – in construing a contract containing provisions characteristics of both a COS and ATS, you have to go into the essential clauses of the whole instrument. In this problem, one of the clauses “B has to pay the price within 30 days”. That would make the contract COS and not ATS because in 30 days from delivery, whether or not B has already sold those pants to other persons, he is already obliged to pay a price. That is not an ATS. Being a COS, therefore, after having been delivered, ownership passed to the buyer and hence under res perit domino rule, the buyer bears the loss and therefore he can be compelled to pay the price. Essential Elements of a Contract of Sale 1. Consent of the Contracting Parties 2. Object or Subject Matter – which is a determinate thing or right Note: Service cannot be the subject matter of sale. 3. Cause or Consideration – as far as seller is concerned, it is the price in money or the equivalent of the payment of the price. CONSENT OF THE CONTRACTING PARTIES A. No consent of one or both of the parties → the contract is void. Under the law on sales, it is a fictitious contract where the signature of one of the parties was forged. Normally, the seller’s signature is forged. If the signature of the seller is forged, that would be a fictitious contract. The alleged seller will not have participation in the execution of the contract. But another kind of contract recognized in the Civil Code is a simulated contract. Simulated – parties to this contract actually would have participation. They would voluntarily sign in the deed of sale. However, they do not intend to be bound at all or they may intend to be bound to another contract but they executed a deed of sale. Thus, the law would ratify these contracts considering there is a simulated sale. Kinds of Simulated Contracts 1. Absolutely Simulated – they do not intend to be bound at all. Q: Why would they enter into this kind of sale? A: To defraud creditors 2. Relatively Simulated – sale where they actually intended another contract which normally would be a donation. B. If consent was given

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→ If consent was given, it does not necessarily mean that the COS is valid. The consent may be given by an incapacitated person or one with capacity to give consent. If given by an incapacitated person, consider the nature of the incapacity. It may be:

a. b.

Absolute Incapacity – the party cannot give consent to any and all contracts. Relative Incapacity – the party is prohibited from entering sometimes with specific persons and sometimes over specific things.

Kind of Capacity 1. Juridical Capacity – it is the fitness to be the subject of legal relations. If a party to a sale has no juridical capacity, the contract is void. Note that all natural living persons have juridical capacity. Even if he is a 1 day old baby, he has juridical capacity. The baby can be the subject of donation. Even if he is conceived, he has provisional personality. Example: One example of a party to a sale without juridical capacity would be a corporation not registered with the SEC. The contract entered by this corporation is a void contract because one of the parties has no juridical capacity to enter into that contract. 2. Capacity to Act – it is the power to do acts with legal effects. If the incapacity only pertains to capacity to act, the contract would normally be voidable. Without capacity to act or there are restrictions with one’s capacity to act such as minority, insanity, deaf mute and does not know how to write and civil interdiction. Note: Under R.A. 6809 (December 1989) there is no more creature known as “unemancipated minor”. Before 1989, the age of majority was 21. C. If both parties are incapacitated → not only voidable but unenforceable. Q: What if one of the parties in a COS is a minor and the minor actively misrepresented as to his age? A: The SC said that the minor will be bound to such contract under the principle of estoppel. Atty. Uribe’s Comment: Estoppel is not a good ground because the minor is not aware. Sale of Necessaries In sale of necessaries such as food, clothing and medicine to a minor, the minor has to pay a reasonable price. This contract is not voidable. The sale of necessaries will bind the minor and he will be compelled to pay not really the contract price but only to reasonable price. Relative Incapacity (Articles 1490 and 1491) 1. Sale between spouses – it is void except: a. The spouses executed a marriage settlement and in the marriage settlement they agreed for a complete separation of property regime. Then they can sell to each other. b. If no marriage settlement, they may have obtained judicial declaration of separation of property. After that, they can sell to each other. 2. Those mentioned in Article 1491

a. b.

c. d.

A guardian cannot buy the property of the ward. The guardian is not actually prohibited from entering into any and all contracts. It is just that he cannot be the buyer of a property of his ward. An agent cannot buy without the consent of the principal a property which he was supposed to sell or administer. The executors and administrators of the estate cannot buy a property which is part of the estate. Public officers, judges, their staff, clerk of court, stenographers and lawyers are prohibited from buying those properties which are the subject of litigation during the pendency of the case.

Q: What is the status of the contracts under 1491? A: Prof. Tolentino – voidable Justice Vitug & Prof. Baviera – void Prof. Pineda & Prof. de Leon – the first 3 are voidable and the last 3 are void. The better answer is void because these persons are prohibited from entering into these contracts. Under Article 1409, if the contract is prohibited, it is void.

Faye Marie C. Martinez – Chato Cabigas – Jessica A. Lopez – Dian Rosapapan November 2008

3. Aliens are prohibited from acquiring by purchase private lands – Take note “acquiring” which means buying not selling. They can sell. Exceptions / when aliens can buy:

a. b.

Former natural born Filipino citizen. Under the Constitution they are allowed to buy small land which they can use for residential purpose. Another way of acquiring is by succession but this is not a sale

D. Even if consent was given by one with capacity to give consent but if the consent is vitiated → voidable. FIVUM E. If the party gave such consent in the name of another without authority of that person or no authority of law → unenforceable. Take note may be authorized by the person or by law. Example of authorized by law: notary public has the right to sell in pledge because he has the authority to sell under the law. OBJECT OR SUBJECT MATTER The requisites in sale as to thing would almost be the same as the requisites of contracts in general. 1. The thing must be within the commerce of men Examples: sale of a navigable river is void, sale of a cadaver is void but donation of a cadaver is allowed, sale of human organs is void, things which are not appropriated like air is void but if appropriated it can be the object of a valid sale. 2. The thing must be licit – not contrary to law Examples: sale of prohibited drugs or shabu is void, sale of marijuana is void, sale of wild flowers or wild animals is void 3. Must be determinate Read Article 1460 RULES AS TO OBJECT OF COS Q: A obliged himself to deliver and transfer ownership over the palay that will be harvested from a specific parcel of rice land in May 2008. What if by May 2008, no palay was harvested? a. What is the status of the sale?

b.

May the seller “A” be held liable for damages for failure to comply with his obligation?

A: a. Always consider that in a COS there are only 3 requisites. As long as these 3 were complied, there is a valid sale. In fact, by express provision of law, sale of things having potential existence (emptio rei sperati) is valid. b. Not necessarily because there are excuses to non-performance such as pestilence, typhoon, flood and therefore his failure to comply is an excuse. But if the reason of the seller is because of his negligence, he cannot find support under Art. 1174. Sale of Hope (Emptio Spei) Example: Sale of a lotto ticket Q: Sale of a land to B with a right to repurchase within 1 year which A delivered. On the 3rd month, B sold the land to C. However, on the 9th month, A offered to repurchase the land. (a) What is the status of the sale between A and C? (b) Who will have a better right over the land? (Sale with a right to repurchase) A: (a) Be guided by the fact that a COS is a consensual contract. The mere meeting of the minds as to the object and the price, then there is a valid and perfected sale. Hence, this is a valid sale even if the object of the sale is a sale with a right to repurchase. Article 1465 provides that things subject to a resolutory condition may be the object of a COS. Atty. Uribe: Mas tamang sabihin – since the ownership thereof is subject to a resolutory condition. Hindi naman yung thing is the subject of resolutory condition, it is the ownership over the thing. If A exercises the right to repurchase and such would be a valid exercise of such right then the ownership of B would be extinguished. The exercise of the right is considered a resolutory condition as to the ownership of B. The fact that the object of the sale is subject to a repurchase will not affect the validity of the sale. (b) As a rule, it would be A as a seller a retro because he has the right to repurchase assuming his repurchase is valid. C may have a better right if he can claim that he is an innocent purchaser for value. Example: maybe the right to repurchase was not annotated at the back of the title of the land

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and he has no actual knowledge. If that is the case, C may have a better right. SALE OF RIGHT / ASSIGNMENT OF RIGHT Assignment of right is not necessarily a sale. If there is a valuable consideration for the assignment, it is a sale. If there is no valuable consideration, it may be a donation or dacion en pago. Examples of right: credit, shares of stock Requisite of a right → the only requirement is that the right must not be intransmissible G.R.: As a rule, rights and obligations arising from contracts are transmissible. Exceptions: 1. Intransmissible by Nature 2. Intransmissible because of Stipulation 3. Intransmissible because of Law CAUSE OR PRICE CERTAIN IN MONEY OR ITS EQUIVALENT Q: A deed of sale was entered into by A and B. The price agreed upon was 1M yen. (a) May that be a valid sale? (b) Can the seller compel the buyer to pay in yen? A: (a) Yes, it is valid. Basis is Article 1458 because the only requirement of the law is “in money”. Even Japanese yen is in money. The law states that it may not even be in money, it may be “equivalent” like promissory notes whether or not negotiable or letters of credit. (b) If the contract was entered into today, yes it is valid because of R.A. 8183 which repealed R.A. 529 in 1996. If COS was entered before R.A. 8183, the seller cannot compel even though the contract is valid. The payment has to be made in Philippine money. Consider the date of the sale. If parties failed to stipulate as to which currency, it has to be in Philippine currency. Price Must be Certain Q: Who can fix the price? A: (1) The best way is for the parties to agree as to the price. (2) They may agree that one of them will fix the price. Q: May the sale be perfected if the agreement of the parties was for one of them to fix the price? A: Yes, it may be perfected only if the price fixed by the party who was asked to fix the price was accepted by the other party. If not accepted, there was no meeting of the minds. Note: The perfection will only be considered at the time of the acceptance of the price fixed by the other party not from the time of the first agreement of the parties. Q: What if a 3rd person was asked to fix the price – A and B agreed that X will fix the price, may the sale be void? A: Yes, the sale may be void if the third person does not want to fix the price or unable to fix the price. Hence, there was no meeting of the minds. Q: If the 3rd person fixed the price but it was too high or too low or maybe there was fraud committed by the 3 rd person or he was in connivance with one of the parties, may the sale be void? A: No, because the remedy of the other party is to go to court for the court to fix the price. Note: Lesion or gross inadequacy of the price does not as a rule invalidate a contract unless otherwise specified by law. Exception: when otherwise provided by law. Example: Article 1381. Note: Under the law on sales, if there is gross inadequacy, it may reflect vitiation of consent so the SC would normally enjoin the lower courts to be warned of the possibility of fraud in case of lesion. Lesion must be proven as a fact. It is not presumed. If there is gross inadequacy, it maybe because actually they intended another contract and that would make the sale a simulated sale and therefore the sale is void. Example: The value of the property is P1M but only P10,000 was written in the contract because they intended it to be a donation → void. TIME OF THE PERFECTION OF THE CONTRACT

Faye Marie C. Martinez – Chato Cabigas – Jessica A. Lopez – Dian Rosapapan November 2008

Auction Sale Auction sale is perfected upon the fall of the hammer or any other customary manner. Thus, before the fall of the hammer in an auction sale, the bidder even if he has already made a bid, he can still withdraw the bid as long as he would do that before the fall of the hammer. Otherwise, (if after the fall of the hammer), there is already a perfected sale. Q: Can the auctioneer withdraw the goods before the fall of the hammer? A: As a rule, yes because the sale has not been perfected at the moment unless the bidding or auction has been announced to be without reserve. Note: Before perfection, there is one contract which maybe perfected. Before perfection meaning in the negotiation stage → this contract is known as the option contract. Option Contract Sanchez vs. Rigos Facts: Mrs. Rigos offered to sell her land to Sanchez for a certain price. Rigos gave Sanchez 2 years within which to decide. (Note: The optionee or promisee or offeree is not bound to purchase but he has the option to buy or purchase). In this case, Sanchez has the option. Before the lapse of 2 years, Sanchez told Rigos that he is buying and offered the price agreed upon but Rigos refused claiming that she was not bound by the written option agreement because no option money (consideration) was given by Sanchez. According to Rigos, the option contract is void. Held: Since Sanchez accepted the offer and decided to buy within the period before the offer was withdrawn, a perfected COS was created even without option money. In this case, there was no option contract because it was merely an option agreement. Therefore, there was merely an offer on the part of Rigos and once the offer was accepted before it was withdrawn, regardless of whether option money was given and in this case no option money was given, a perfected COS was created. Note: Iba pag may option money Q: 2 years within which to decide – assuming there was option money, before the offeree could decide to buy, the offeror withdraw on the 6th month.

(a)

Can the offeree on the 10th month say “I would like to buy”? Can the buyer compel the seller to sell?

(b) A: (a) No. (b) No, an action for specific performance will not prosper because when he said he will but there was not more offer to be considered. Na-withdraw na eh. Q: If the offeree files an action for damages, may that action prosper there being option money given? A: Yes, because with the option money, an option contract is perfected, the offeror is bound to give the offeree, 2 years within which to decide and failure to that he is liable not based on perfected COS but on perfected contract of option. Option Money (OM) vs. Earnest Money (EM) OM is not part of the price while EM is part of the price and at the same time, it is a proof of the perfection of the contract. G.R.: A COS may be in any form. Article 1483 provides that a COS may be in writing, partly in writing xxx. This provision is exactly the same as Article 1356 in contracts which provides that contracts may be obligatory in whatever form they may have been entered into provided all the essential requisites are present. But then again even Article 1356 just like Article 1475 would provide for exceptions. Exceptions: The law may require a particular form for its validity. The Cattle Registration Decree is an example - where the law itself provides for a particular form for the validity of the sale. But the law may require particular form for its enforceability of the sale and that would be 1403 or the statute of frauds. Concretely, the sale of a parcel of land if not in writing is valid but unenforceable. It is not void. Note that the price of the land is irrelevant if immovable. Example: Before, the sale of a land for P300 is valid and enforceable even if not in writing. But presently, it has to be in writing to be enforceable. The price is still irrelevant. If the object of the sale is movable, you have to consider not the value of the thing but the price agreed upon. The value may be different from the price. You can sell a thing worth P1,000 for P400 but the law provides for

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the price. If the price is at least P500 and the sale is not in writing, it will be unenforceable. Paredes vs. Espino Facts: Paredes was a prospective buyer. Espino owns a land in Palawan. Paredes is from Northern Luzon. Their negotiation was thru letters and telegrams. Espino sent a letter to Paredes stating that he and his wife agreed to sell the land to Paredes, that the deed of sale will be executed upon the arrival of Paredes in Palawan. When Paredes arrived, Espino said he is no longer interested in selling. Paredes filed a case to compel Espino to sell the land. Espino contended that the contract is unenforceable because it is not in writing. He contended that under the statute of frauds it is unenforceable. His contention was sustained by the trial court. Held: This contract is no longer covered by the statute of frauds because there was a letter. Article 1403 provides that a note or memorandum signed by the part charged would be sufficient to take that contract out of the operation of the statute of frauds. In this case, the defendant wrote a letter with his signature on it. The letter took that contract out of the operation of the statute of frauds and therefore he may be compelled to execute the final deed of sale. RIGHTS AND OBLIGATIONS OF THE VENDOR In a deed of sale (DOS), there can be hundreds of obligations of the vendor but those obligations would be because of the stipulation. But there are only few obligations imposed by law. The 3 most important: 1. To transfer ownership 2. To deliver 3. To warrant the thing There are other obligations: 4. Obligation to take care of the thing sold with the diligence of a good father of a family prior to delivery. 5. From the time of the perfection up to the time of delivery then there would be obligation to pay for the expenses for the execution and registration of the sale and obligation to pay the capital gains tax would be on the seller as a rule. 6. Obligation to deliver the fruits which is related to the obligation to deliver the thing OBLIGATION TO DELIVER THE FRUITS BE: A sold a mango plantation to B but they stipulated that delivery will be after the signing of the deed of sale. After the expiration of the 6-month period, B demanded for the delivery. The vendor was able to deliver 1 month after the date when he was supposed to deliver the mango plantation. During this period, the vendor harvested mango fruits and sold them to X. The vendor was able to deliver only after the other fruits were harvested and sold to Y. Can B recover the mango fruits from Y during the 6th month period? SA: Determine first whether B is entitled to the fruits because if he is not entitled, then he cannot recover the fruits. Is he entitled to the fruits after 6month period during the 1-month period prior to delivery? Yes, in fact, under 1537, the fruits of the thing sold from the time of perfection shall pertain to the buyer. OBLIGATION TO TAKE CARE OF THE THING G.R.: The thing sold should be determinate because if generic (1460, 2nd paragraph) then there is nothing to be taken cared of. It will become determinate only upon delivery. Exceptions: There are sales transactions wherein the vendor would not have this obligation:

a.

Constructive delivery - brevi manu – There would be no obligation on the part of the seller to take care of the thing from the time of perfection because at the time of perfection, the buyer was already in possession of the thing. Maybe he borrowed the thing. Example: he borrowed the car and he decided to buy it – the thing was already in his possession.

OBLIGATION TO PAY EXPENSES / TAXES These obligations may be the subject of stipulation. By agreement, it would be the buyer who will pay xxx Normally, dito hindi natutuloy ang sale dahil hindi magkasundo kung sino magbabayad ng tax. OBLIGATION TO TRANSFER OWNERSHIP BE: May a person sell something which does not belong to him? Would the sale be valid? Would the buyer acquire ownership over the thing sold, if seller does not own the thing? SA: Yes. Ownership over the thing sold is not an essential requisite for the sale to be valid. But if the seller does not own the thing, he may have a problem on his obligation to transfer ownership. The problem would be

Faye Marie C. Martinez – Chato Cabigas – Jessica A. Lopez – Dian Rosapapan November 2008

whether or not the buyer would acquire ownership over the thing sold if the person who sold the thing is not the owner.

Even if agent has no right to sell, a third person may acquire ownership because he may rely on the power of attorney as written.

Q: Who would have the right to sell and therefore they can transfer ownership by way of sale? A: First, is the owner. Even if he is not the owner, he may have the right to sell because:

B. Recording Laws *most common question in the bar exam

(1) (2) (3)

He was given the authority by the owner. Example: Agent He may be the owner but he may have the authority of the law to sell, known as “Statutory Power to Sell” (Article 1505). Examples: Notary public in pledge, liquidators, guardians and receivers. Those who have the authority of the court. Example: Sheriff. Note: it is as if they have the authority of law because not even the judge can validly sell something if it is not consistent with the law.

Q: May a buyer acquire ownership over the thing sold if the seller has no right to sell? A: The answer by way of exception is yes. But the general rule here is under 1505 – the buyer acquires no better title than what the seller had. If the seller is neither the owner nor does he have the authority to sell, the buyer acquires no better title than what the seller had. If his right is only as a lessee that is the most that can be transferred to the buyer. If he has no title then no title can be transferred to the buyer. Exceptions: (When the buyer can acquire a better title than what the seller had. Even if the seller does not have the right to sell, the buyer may acquire ownership over the thing sold because the law so provides and not because the seller was able to transfer ownership to the buyer.) 1. By Estoppel 2. Estoppel by Deed 3. Estoppel by Record 4. Sale by an Apparent Owner

5.

Negotiable Document of Title 6. Purchases from a Merchant’s Store xxx 1. By Estoppel – by the principle of estoppel, a person is precluded from denying that another person has authority to sell because of his acts. Also known as “Estoppel in Pais” which is a kind of equitable estoppel because of the acts / representation of the owner, he may not later on deny the authority of the 3rd person. 2. Estoppel by Deed BE: A and B co-owners of land sold (sale is verbal) to X their land. X subsequently sold the land to Y. Would Y be considered to have acquired ownership over the land? SA: Under 1434 which is considered as “Estoppel by Deed” (technical estoppel) – when the seller who was not the ownerat the time of the sale, acquires ownership, automatically, ownership passes to the buyer by operation of law. However, Article 1434 requires delivery to the buyer. And under the facts, 1434 would not apply because: a) There was no showing there was payment b) No showing that there was delivery of the land to X. It cannot be said that by operation of law, Y likewise acquired ownership by way of estoppel by deed. 3. Estoppel by Record Jurisprudence: Sale by nephew of the owner of the land. Since the nephew could not deliver the land, the buyer sued the nephew for estafa. For the accused to be acquitted, he asked his uncle to testify that he actually had the authority to sell. When the uncle testified in court, the nephew is acquitted. After acquittal, the buyer demanded from the uncle the delivery of the land. The uncle refused, claiming that “sa totoo land, I did not authorized my nephew”. Q: Case was filed against the uncle, would that action prosper? A: SC said yes because he cannot be allowed now to claim that his nephew was not authorize to sell after he testified in court that he gave such authority. This is estoppel by record which is considered a technical estoppel. 4. Sale by an Apparent Owner A. Factor’s Act B. Recording Laws C. Any other provision of law enabling the apparent owner of the goods to dispose of them as if he was really the owner. A. Factor’s Act

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Read: Mapalo vs. Mapalo 5. Negotiable Document of Title If goods are covered by a negotiable document of title and it was thereafter negotiated. If the buyer bought it in good faith and for value, he will be protected under the law. He will acquire ownership even if the seller did not have the right to sell. Example: The seller may have acquired title by violence. Binugbog nya yung owner ng goods. Pero kung negotiable document of title yan and properly negotiated, lalo na kung bearer document of title, then the buyer may acquire ownership even if the seller has no right to sell. 6. Purchases from a Merchant’s Store / Markets / Fairs Sun Brothers vs. Velasco Facts: Sun Brothers was the owner of a refrigerator. Sun Brothers was engaged in the business of selling refrigerator. Sun Brothers sold a ref to Lopez on installment basis. As stipulated, Sun Brothers reserved ownership until full payment. Lopez only paid P300 out of P1,500. The balance to be paid on installment. Lopez then sold the ref to Velasco. Q: Would Velasco acquire ownership? A: No because Article 1505 provides that the buyer acquired no better title than what the seller had. However, Velasco was the owner of a store. On the next day, Velasco sold the ref to Ko Kang Chu who paid in full. When Sun Brothers learned this transaction, it filed an action to recover the ref from Ko Kang Chu. BE: F lost her diamond ring in a hold-up. Later on, this ring was an object of a public sale of one pawnshop. Can F recover the ring from the buyer in that public sale? SA: Yes, Article 559 provides that even if the buyer is in good faith so long as the owner is willing to reimburse the buyer of the price paid in that sale. Note: Again in 1505, there is no right to recover as long as the buyer bought it in good faith from a merchant’s store, there can be no recovery as a matter of right. Q: How transfer of ownership is effected? A: Under the law, as far as things are concerned, it is effected by delivery: (a) Actual (b) Constructive There can be no transfer of ownership without delivery. Notes:

(a) (b)

(c)

There may be a period agreed upon by the parties within which the buyer would have to decide. Even if he failed to signify his acceptance by the mere lapse of the period, he is deemed to have accepted (impliedly accepted) hence, ownership passes to him. Even before the lapse of the period, he may be considered to have accepted if he did an act wherein he would be considered to have adopted the transaction then ownership passed to him. Example: Even if he has 10 days within which to decide but on the 2nd day, he sold the car to another. Obviously, he is deemed to have accepted the thing because he did an act which is inconsistent with the ownership of the seller like he donated or destroyed the thing. If there is no period agreed upon, the law says if he did not signify his acceptance he will be considered to have accepted after the lapse of a reasonable time. Reasonable time will depend on the circumstances of the sale, purpose of the sale, nature of the thing sold. Example: Perishable goods.

Sale or Return Q: Ownership passes upon delivery? A: Yes. However, the buyer is given the right to revest the title back to the seller normally within a certain period. Example: Clauses in subscription magazine which says that you can return within 30 days without payment. BE: A car was sold for P150,000. P75,000 paid upon the execution of DOS. The balance payable on a monthly basis. P75,000 was paid. The car was delivered to the buyer. However, before he could pay the balance, the car was destroyed due to a fortuitous event or was burned xxx Can he still be compelled to pay the balance?

Faye Marie C. Martinez – Chato Cabigas – Jessica A. Lopez – Dian Rosapapan November 2008

SA: Yes. Upon the delivery of the car to the buyer, there being no retention of ownership by the seller. (Note: Wala sa facts na na-retain ng seller and ownership). Therefore, ownership passed to the buyer. Under the principle of res perit domino – Article 1504 – the owner bears the loss and hence it can be compelled to pay the price. G.R.: Res perit domino – 1504. Note: Determination of when ownership passed is important because if at the time of the loss, the buyer is not yet the owner, as a rule, the buyer will not bear the loss like in sale on approval and he has 10 days within which to decide and the thing was lost through a fortuitous event within the 10-day period without fault on his part, the seller will bear the loss. Exceptions: 1. Read Lawyers’ Cooperative vs. Tabora 2. Delay in the Delivery When there is delay in the delivery due to the fault of one of the parties, whoever was at fault will bear the loss. Note that either buyer or seller may be at fault. Example 1: The buyer and the seller may have agreed that the goods are to be obtained by the buyer at the warehouse of the seller on a specific date. On the date agreed upon, the seller demanded the buyer to get the goods. Despite such, the buyer failed to get the goods. On the next day, the warehouse was destroyed due to fortuitous event. Q: Who is the owner at that time? A: The seller but there was delay on the part of the buyer hence under 1504 it is the buyer who will bear the loss.

Q: Who would have a better right between C and B (C had no knowledge of the sale)? A: SC Said → B because this land was not registered under the Torrens System. 1544 would not apply to unregistered lands. OBLIGATION TO DELIVER THE OBJECT OF THE SALE Determine the subject matter if it is a thing or a right because there are different modes of delivery as to thing and as to right. Things Kinds of delivery of things as a consequence of sale known as “tradition” – under the law: 1. Actual Delivery / Material Delivery / Physical Delivery / Real Delivery – the thing is in the possession and control of the vendee. Take note “control”. Take note “to the vendee”. Q: What if the thing was delivered to a 3rd person? A: Jurisprudence – SC said → yes, there maybe actual delivery if the third person has authority to receive from the vendee. Thus, making him an agent of the vendee and that would still be actual delivery. Note: Philippine law does not only require actual delivery – constructive delivery may result in transfer of ownership. 2. Constructive – by the execution of a public instrument if the contrary intention does not appear on the document. By the mere execution of the public instrument that is equivalent to delivery. Hence, ownership passes to the buyer.

Example 2: The seller himself maybe the one at fault. Thus, he is in delay in delivering the goods to the buyer. Q: Why would this be an exception to the res perit domino rule? A: Ang premise dito, the ownership has already passed to the buyer but the goods are still with the seller. Can this happen? Yes, because of constructive delivery. If there was constructive delivery, ownership passes to the buyer but physical possession is still with the seller. They may have agreed this time that the seller will be the one to deliver the goods to the buyer at a certain date. When the date arrived, despite demand from the buyer, there was no delivery on the part of the seller. Even if the goods are destroyed the next day due to fortuitous event, take note ang owner ay ang buyer na but who will bear the loss? The seller because he was in delay in delivering the goods.

Kuenzle & Streiff vs. Macke & Chandler Facts: The original owner here Stanley and Griffindor (parang Harry Potter ) and the property involved here are fixtures of a saloon. Macke and Chandler are judgment creditor of Stanley and Griffindor. Because of a judgment in favor of Macke and Chandler, the sheriff levied upon these properties which was still in the possession of Stanley and Griffindor. The properties under execution were questioned by Kuenzle and Streiff. Kuenzle and Streiff claimed that these things were sold to them prior to the levy. If they claimed that the properties were sold to them, the properties should be in their possession. Take note that Stanley and Griffindor were still in possession of the goods physically. Hence, there was no actual delivery. Held: In order that ownership would pass, it has to be in a public instrument if that would be by constructive delivery.

DOUBLE SALE (ARTICLE 1544) BE: F sold a registered parcel of land to R who did not register the sale. Thereafter, F sold the very same parcel of land to C who registered and obtained a new TCT in his name. Who would have a better right? SA: Atty. Uribe: I fully agree with the UP Law Center’s answer. It depends on whether or not C registered the sale in good faith. Registration is only one of the requirements good faith is equally an important requirement.

Kinds of Constructive Delivery 1. Delivery of the Keys – of the place where the goods are located like a warehouse. Prof. De Leon: this also called as symbolic delivery.

Note: In 1544 (double sale), as to which rule applies will depend on the thing sold if movable or immovable. Q: If the thing is sold twice, who would have the better right? A: If movable, the buyer who first took possession in good faith will have the better right. If immovable, the buyer, who first registered in good faith, will have the better right. If there was no registration, it will be the first who took possession in good faith. If no possession in good faith, the buyer who has the oldest title in good faith. Even the 1st buyer is required to be in good faith. Obviously, the first buyer would have the oldest title. Yung good faith ditto obviously would not pertain to absence of knowledge of the 2nd sale kasi syempre 1st buyer sya. He is nonetheless required to have bought the thing in good faith. Good faith means that he had no knowledge of the defect of the title of the seller. Warning: Please be careful when you recite – you register the sale not the land. Read: Bautista vs. Sioson Carumba vs. CA Facts: Sale of land to B who took physical possession but did not register. He is the first buyer. However, the seller (A) is a judgment debtor in one case to a certain creditor named C. The land became the subject of an execution sale. The buyer became C who registered the sale.

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2. By Mere Consent or Agreement of the Parties – if at the time of the sale, possession to the goods cannot be transferred to the buyer. There must be a reason why it cannot be transferred at the time of the sale. This is also known as tradition longa manu. Example 1: The thing was the subject matter of a lease with a 3 rd person until the expiration of the lease, the thing cannot be delivered. Example 2: The thing was the subject matter of commodatum. As a rule, period of commodatum has to be respected. 3. Brevi Manu – this is a kind of constructive delivery because the buyer was already in possession of the thing sold at the time of the perfection of the sale so he will continue to be in possession after the sale, no longer as a lessee but this time as the owner. So dati lessee lang sya that is why he was in possession or maybe depositary lang sya or maybe he was the agent at the time prior to the sale. 4. Constitutum Possessorium – the seller will continue to be in the possession of the thing after the sale but no longer as an owner but in another capacity like lessee. Bautista vs. Sioson Because a lease agreement was entered into by the buyer and seller after the sale then the buyer became the lessor and the seller became lessee. Therefore, the lessee would continue with the possession no longer as an owner. Rights Kinds of Delivery of Incorporeal Property / Quasi – Tradition: 1. Execution of Public Instrument

Faye Marie C. Martinez – Chato Cabigas – Jessica A. Lopez – Dian Rosapapan November 2008

2. Placing the Title of Ownership in the Possession of Vendee – a right would normally be covered by a certificate. Example: delivery of the certificate of shares of stocks. 3. Use by the Vendee of His Rights with the Vendor’s Consent Example: Sale of shares of stocks → the vendee may not always have the right to exercise his rights under the shares of stocks. Concretely, if there is a stockholders’ meeting, the books of the corporation will be closed for 30 days before the meeting. Thus, if the sale occurred when the books are already closed, no one will be recognized except those registered owners. So if you are the buyer of those stocks, you can only use your right with the consent of the vendor. RULES ON SALE AS TO QUANTITY / QUALITY OF THE THING SOLD Q: In a sale involving 1,000 pairs of shoes with a specific design as agreed upon. The seller delivered 1,200 pairs of shoes instead of only 1,000. Can the buyer reject everything? A: No. He has the right to reject only the excess. Reject the 200 but he can be compelled to accept the 1,000. Q: What if instead of 1,000, 800 was only delivered? A: The buyer cannot be compelled to receive 800 because partial performance is non-performance. You cannot compel the creditor to accept partial fulfillment as a rule because it can be a subject of a stipulation that there can be partial delivery. Q: The obligation to deliver 1,000 cavans of Milagrosa rice. Instead of delivering 1,000 cavans of Milagrosa, the seller delivered 1,100 cavans of both Milagrosa and Burmese rice. May the buyer reject everything? A: Yes, if the goods are indivisible. Meaning each sack of rice, Milagrosa and Burmese rice were mixed. However, if it is clear that per sack it is Milagrosa rice and the 100 sacks, it is clear that those are Burmese rice that would not be considered as indivisible. He can be compelled to accept 1,000 sacks Milagrosa and he has the right to reject 100 sacks Burmese rice. SALE OF REALTY Q: Sale of a parcel of land. Price agreed upon is P1M. More or less 100 sqm. The actual area delivered by the seller was only 95 sqm. What are the remedies of the buyer? A: (1) Specific performance – would be a remedy if the seller is still in the position to deliver the balance. Siguro yung katabing lupa sa seller din, hence, he can afford to give additional 5 sqm. (2) Q: If specific performance is not possible, is proportional reduction a remedy? A: It depends on whether the sale is considered as a sale with a statement of an area of a rate of a certain measure or if it is a lump sum sale. Q: Under the facts, 95 sqm was delivered, would rescission be a remedy? A: As a rule no because rescission would only be a remedy if the area lacking is more than 10% of that area agreed upon. So kung 100 sqm, dapat 11 sqm or 15 sqm ang kulang, so out of 100 kung 85 lang ang nadeliver, then rescission is a matter of right. PLACE OF DELIVERY Read 1524, 1525 and 1198 The seller delivered the goods to the place of business of the buyer. If the buyer refuses to receive the goods, the buyer will be considered in delay and therefore will be liable to the seller because of unjust refusal. Q: May the buyer be considered in delay for his refusal to accept if there is no place stipulated in the contract? A: It depends on the kind of thing. Determine if it is determinate or generic. If the thing is determinate, the law provides that it will be the place where the thing is located at the time of the perfection of the contract. Q: What if the object of the sale is a generic thing? A: Seller’s place of business or residence. Note: If there is no stipulation when to be delivered, the seller cannot be compelled to deliver. Q: What if at the time of the perfection of sale, though the thing is determinate, it was on board a ship while in transit. Where will be the place of delivery? A: Depending on the shipping arrangement agreed upon by the parties. F.O.B. – Free on Board C.I.F. – Cost, Insurance, Freight

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F.O.B. and C.I.F are rules of presumption which would have to give way to the real intention of the parties. So after all, the F.O.B. or C.I.F. arrangements do not really determine the place of delivery, they only make rules of presumption. So in a C.I.F. arrangement, it is only presumed that the place of delivery is the port of origin. In a F.O.B. destination, it is only presumed that the point of destination is the place of delivery. Q: What really determines the place of delivery? A: SC said this indication as to the intention of the parties as to the place of delivery is the manner and place of payment. If there is an agreement as to where and how the price is to be paid that would be the place considered for purposes of delivery and therefore for transfer of ownership. Read 1582 Obligations which cannot be Waived: 1. Obligation to transfer 2. Obligation to deliver Obligation which can be Waived: 1. Obligation to warrant the thing Kinds of Warranties under the Law: 1. Express 2. Implied 1. Express – any affirmation of fact or any promise by the seller relating to the thing, the natural tendency is to induce to purchase the thing. Requisites: (a) There is an affirmation of fact (b) The fact must pertain to the thing either to the quality, character or title of the thing Any other matter may not be considered as an express warranty. The use of the words / terminologies is not conclusive as to whether or not there is an express warranty. Example: “I guaranty / warranty you that you will be happy if you buy this car at P100,000”→ this does not result in an express warranty Again, if the affirmation of fact pertains to the quality of the thing, it is an express warranty. Example: These 10 sacks of fertilizer would result in 200 cavans of rice. The statement of the seller’s opinion is not as a rule considered an express warranty. Example: “This is the best piña cloth” → it may turn out that there are better piña cloth. As long as the seller is not an expert on that field, that would be treated merely as an opinion and there can be no liability for breach of an express warranty. BE: “A” sold a land to B for P1M in Antipolo. As agreed upon P100,000 will be paid upon the signing of the DOS. The balance will be paid within 30 days from the time the occupants (squatters) of the land are evicted. It was so stipulated that if within 6 months, the squatters have not yet been evicted, the seller should return the P100,000. Another stipulation states – within the 6-month period, the value of the land doubled. Despite the filing of an eviction suit by the seller and the lapse of the 6-month period, the squatters were still occupying the land. The seller offers to return the P100,000 to the buyer. The buyer refused to accept the P100,000 and told the seller “never mind even if the squatters are still there. I will still buy the land”. So the buyer offered to pay the balance P900,000 and demanded that a DOS be executed by the seller. The seller refused to accept the P900,000. What he did is to file an action to rescind the contract. Would the action prosper? SA: If the answer is based on rescission, the action will not prosper because rescission may only be invoked by the aggrieved party. The seller is not an aggrieved party. 2. Implied –

Faye Marie C. Martinez – Chato Cabigas – Jessica A. Lopez – Dian Rosapapan November 2008

Prof. De Leon: because of this implied warranty, it cannot be said that Philippine law does not adopt caveat emptor “buyer beware”. (Faye’s Caveat : Please check the book of Prof. De Leon regarding this statement. Thanks ) Even if there is no stipulation as to these warranties, the law itself would provide for these warranties and hence if there are hidden defects he would have remedies under the law or even if he was deprived of the thing he bought he would have a remedy against the seller. Hence, it is not correct to say that Philippine law has adopted caveat emptor. But there are certain instances when there would be no such implied warranty against hidden defects. There may be warranty as to title or against eviction but there is no warranty against hidden defects under certain circumstances. Warranty Against Eviction / Title Q: If the seller was able to transfer ownership to the buyer may the seller nonetheless be held liable for breach of warranty against eviction? A: Yes. These are 2 different obligations: the obligation to transfer ownership and the obligation to warrant the thing. Example: This warranty against eviction would include the warranty that the buyer from the moment of the sale have and enjoy the legal and peaceful possession over the thing sold. Requisites of warranty against eviction: 1. There has to be final judgment depriving him of such thing either wholly or partially. In other words, a case was filed by a 3 rd person against the buyer which resulted in a favorable decision as to the plaintiff resulting in the deprivation of the property by the buyer. 2. Deprivation must be either: (2.1) Based on a 3rd person’s prior right over the thing prior to the sale or (2.2) Based on an act after the sale but imputable to the vendor. 3. There should be no valid waiver 4. The action to hold the vendor liable should be filed within the period prescribed by law. WARRANTY AGAINST HIDDEN DEFECTS Requisites: 1. The defect must exist at the time of the sale. If the defect started after the sale there can be no such liability. 2. The defect must be hidden. If the defect is patent and the buyer nonetheless bought the thing then he can no longer hold the seller liable. If the seller is not aware of the hidden defects, he can be held liable. If he was aware, his liability will be greater because that makes him a bad faith seller. Q: Even if there is such a hidden defect, is it possible that the vendee cannot hold the vendor liable despite the fact that there was hidden defect even if he was not informed because maybe the seller was not aware? A: Yes, he may not be able to hold the seller liable if he is an expert on the thing. He is expected to know the defect. 3. The defect must result in the thing being unfit for the purpose of the buyer or at least it diminish the fitness of the thing such that the buyer would not have bought it at the price had he known of such defect. Q: If the thing which has a hidden defect was lost or destroyed, can the vendee hold the vendor liable for this breach of warranty? Does it matter if the loss was due to a fortuitous event or maybe the loss was due to the fault of the buyer himself, nonetheless, can he hold the vendor liable? A: Yes. The vendee can hold the vendor liable for breach of warranty against hidden defects even if the thing was lost due to fortuitous event or due to the fault of the vendee himself because of the hidden defects. But of course, if the cause of the loss was the defect itself, the liability is greater than if the cause of the loss was a fortuitous event or fault of the buyer. If there would be a problem here as to the extent of the liability of the vendor, he should first consider the cause of the loss, maybe it was lost due to the defect itself or lost through fortuitous event or lost through the fault of the vendee. After that, he should determine whether the vendor was aware of the defects or he was not aware. Again, if he was aware, damages may

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be recovered. If he was not aware, he may not be held liable for damages unless he can only be held liable for interest. If the defect was the cause of the loss, the vendor would be liable for the return of the price, not only the price less value but also to refund the expenses and damages because the vendor was aware of the defects. If the vendor was not aware of the defects, he cannot be held liable for damages but he would only be held liable for the price. If the cause of the loss of the thing was a fortuitous event, he can only be held liable for the price less value. ANY CHARGE OR NON – APPARENT ENCUMBRANCE NOT DECLARED OR KNOWN TO THE BUYER Q: Would there be an encumbrance over an immovable which is a form of easement or servitude? A: An example of this is a road right of way. Q: If the buyer bought the land which turned out to have a road right of way in favor of a 3 rd person, can he claim breach of warranty against any charge or non – apparent encumbrance? A: Of course there are requisites: (1) The encumbrance or easement or burden or the road right of way has to be non – apparent. Q: If there is an encumbrance, what are the remedies of the buyer? A: (a) He can seek for the reduction of the price. (b) Rescission - the law requires that the action for rescission must be filed within 1 year from the date of the contract. If after 1 year, no more rescission. (c) If he became aware more than a year, he may file an action for damages, But the law requires that the action for damages has to be filed within 1 year also but from the time of the discovery of encumbrance. If he filed it for example, after 2 years from discovery – no recovery of damages. WARRANTY OF QUALITY Prof. Deleon, Prof. Vitug, Prof. Baviera: there is another warranty which is WARRANTY OF QUALITY which includes: (1) Warranty of Fitness (2) Warranty of Merchantability To some authors the warranty of quality is considered under the warranty of hidden defects. Atty. Uribe: I cannot agree that the warranty of quality is in the warranty of hidden defects. I agree with Prof. De Leon, Prof. Vitug and Prof, Baviera that there is a warranty of quality. WARRANTY OF FITNESS FOR A PARTICULAR PURPOSE The thing bought may not actually have any defect and for 1 million buyers it would be fit for their purpose. However, it may not be fit for the purpose of 1 buyer and if all the requisites for this warranty are present, then he may hold the seller liable for breach of warranty of fitness for a particular purpose although there is no hidden defect but it is not fit for the purpose of the buyer. In order for the seller may be held liable: 1. The buyer has to inform the seller of the particular purpose for which the thing is to be use and 2. The seller manifested that the thing would be fit for the purpose and the buyer relied on such representation of the seller. Note: If the thing is sold under the trade name there can be no warranty of fitness for a particular purpose. WARRANTY OF MERCHANTABILITY It pertains to the fact that it is fit for the general purpose. If the thing was sold by description or by sample, it is considered that there is such a thing as warranty of merchantability. SALE OF ANIMALS WITH DEFECTS – RULES: 1. The defect is a redhibitory defect – it is such kind of defect that even by examination of expert it cannot be discovered. Q: If one of the animals has redhibitory defect, can the buyer rescind the entire contract pertaining to all the animals? A: G.R.: No. He can only rescind the contract pertaining to the animal with redhibitory defect. He cannot rescind the entire contract pertaining to all animals.

Faye Marie C. Martinez – Chato Cabigas – Jessica A. Lopez – Dian Rosapapan November 2008

Exception: If he can prove that he would not have bought the others had he known the defect of one then he can rescind the entire contract. Q: Who has the burden of proof that he would not have bought the others had he known of the defect of one? A: Normally, it would be the buyer. But the law under certain circumstances would provide for this presumption that it is presumed that he would have bought the others had he known of the defect of one. Examples: He bought the animals in teams or in pairs then the presumption arises.

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Love birds (Ang mga love birds, kapag namatay yung isa later on mamatay din yung isa. Minsan nga mgsuicide pa sya pag mag isa na lang sya. Iuuntog nya ulo nya sa cage nya. ) Instances whether there would be no warranty against hidden defects and therefore caveat emptor may be invoked: 1. Sale which is an “as is where is” sale which means sale where it is found xxx bahala ka sa buhay mo if you want to buy the thing and you cannot later on claim that there were hidden defects. (Faye: pls. research the complete meaning of “as is where is” sale. Atty. Uribe will ask the meaning. ) 2. Sale of 2nd hand items 3. Sale of animals in fairs 4. Sale in public auction Note: There would still be warranty against eviction. Note: Rules on warranty also apply to judicial sale. Q: In sale by authority of law or in execution sale, can there be breach of warranty against eviction? A: Yes. The judgment debtor and not the sheriff shall be liable. The law would specifically exempt certain persons from liability for breach of warranty like sheriff, auctioneer, mortgagee, pledge and other persons who sell by virtues of an authority of law like notary public because they are not really selling for themselves, they are selling on behalf of another person. RIGHTS AND OBLIGATIONS OF THE VENDEE 1. Obligation to accept the thing delivered. 2. Obligation to pay the price (if warranted, with interest)

Unpaid seller – is one who has not been fully paif of the price. Note: remedies of the unpaid seller are not necessarily alternative. The right of resale and the right to rescind may only be exercised if the seller has possessory lien. POSSESSORY LIEN Q: Why is it called possessory lien? A: because there another lien in the law. This is the lien under the rules on concurrence and preference of credit. Note: The buyer is not required to be insolvent. Q: When would the seller be considered to have lost his lien? A: (1) If he waives his right

(2) (3)

If the buyer lawfully obtained possession over the goods When the thing is delivered to a common carrier and the seller did not prefer his ownership and possession over the goods.

STOPPAGE IN TRANSITU Requisites: (1) Insolvency of the buyer (2) The seller must have parted possession over the goods (3) The goods must be in transit How right is exercised: (1) By obtaining actual possession of the goods (2) This may be exercised by mere notice to the common carrier If the seller validly exercised the right of stoppage in transitu, he will be considered to have regained his possessory lien. RIGHT OF RESALE Q: When would the seller have this right? A: (1) If the goods are perishable

(2)

The right is expressly reserved in the contract (3) The buyer has been in default for an unreasonable time.

1. Obligation to accept the thing delivered Note: The seller should send a notice of the intention to resell to the buyer. Q: If the buyer received the goods delivered, does it mean that he already accepted? A: No because receiving is preliminary to accepting. In fact, this is consistent to the right provided by law to the buyer which is the right of inspection or the right of examination. Thereafter, he may reject the goods if defective. 2. Obligation to pay the price Q: When? A: (1) As stipulated (2) If there is no stipulation, it would be at the time and place of delivery. Right to Inspect / Examine This may be waived. Example: C.O.D. arrangement.

RECTO LAW Pls. read Sales by Prof. Baviera EXTINGUISHMENT OF SALE Pls. read Sales by Prof. Baviera 1. 2. 3.

Payment Novation Loss of the thing

Under the law on sales

1.

MACEDA LAW Study Maceda Law and its essential features (see book of Prof. Baviera) Q: Are the remedies under the Maceda Law alternative? Can the buyer be able to exercise 2 or more remedies all at the same time? A: Yes. Remedies under the Maceda Law are cumulative. REMEDIES FOR BREACH OF CONTRACT REMEDIES OF AN UNPAID SELLER (ARTICLE 1526) (1) Right to retain the thing in his possession (possessory lien) (2) Right of stoppage in transitu / right to resume possession of the goods (3) Right of resale (4) Right to rescind Q: Are there other remedies aside 1526? A: Yes. The seller may opt to file an action for specific performance or an action for damages.

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Note: The resale may be a private sale or a public sale. The only limitation here is that the seller cannot buy directly or indirectly.

2. 3.

The exercise of the right of resale will result in the extinguishment of the 1st sale. The ownership of the 1st buyer will be terminated and such ownership will be vested to the 2nd buyer Rescission or cancellation will extinguish COS Redemption

Kinds of Redemption 1. Conventional 2. Legal

LEASE Note: • 1713.

Read the Definition of Lease under Articles 1643, 1644,

Faye Marie C. Martinez – Chato Cabigas – Jessica A. Lopez – Dian Rosapapan November 2008

• Consider also on Formalities: Articles 1647, 1724 in relation to 1403 on Statute of Frauds and 1403, 1878 on Agency to Lease. •

Assignment and Sublease: Articles 1649, 1650

•

Implied new lease or tacita recunducion: Article 1670 (important)

•

Rights and Obligation of the Lessor and Lessee: Articles 1673, 1678, 1680, 1723 (take note several questions in the bar have appeared under these provisions) • Period of the Lease if the parties failed to Fixed the Period: Articles 1682, 1687

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Rights of Third Person: Article 1729 (ex: rights of owner of materials against the owner of the building)

♦ ♦ ♦

Bilateral Nominate Principal.

Essential Requisites of Contract of Lease 1. CONSENT 2. OBJECT Q: In lease of things, may a consumable thing be the subject matter of lease? A: Normally when a consumable thing is use in accordance with its nature it is consumed, as a rule therefore consumable things cannot be the subject matter of lease of things. The exception is, when the use of the things is only for exhibition, or when they are accessory to an industrial establishment then it may be a subject of lease. 3. CAUSE FORMALITIES Lease of Service – there is no particular form required by law for the validity of the lease not even for the enforceability as a rule. Read: Donald Dy vs. CA

Note: The first thing to consider in lease is to consider the kind of lease.

Lease of Things – certain provision of the law which requires certain forms to be enforceable.

Kinds of Lease: 1. Lease of Things 2. Lease of Work or Service 3. Lease of Right

Note: the problem in lease would normally be a combination of an agency and lease.

Note: In lease of Service, there are four (4) of them but three (3) will not be covered by Civil Law, which are Household Service and Contract of Labor (covered by Labor Law), and Contract of Carriage (covered by Commercial Law). The only kind of Lease of Service that will be discuss under the Civil Law is the Contract for a Piece of Work. Definition: Q: If a party binds himself to give another the enjoyment or use of thing, does that make the contract one of lease of things? A: No, the most important distinction here with that of commodatum is that in lease, it must be for a price certain, otherwise if there is no valuable consideration for the use or enjoyment of the thing it will be commodatum. Distinguish a Contract for Piece of Work from Contract of Agency Read: Frensel vs. Mariano Note: In Agency, the control of the principal over the agent is so pervasive that the principal can control not only the result but also the manner and method of the performance of the obligation which is not present in this case and therefore Merit was not considered an agent of Mariano.

BE: Agreement for the repair of a private plane and for a certain sum of money, however additional work was requested by a person who has the authority of a duly recognize representative of the owner of the plane and the request was merely verbal, when the additional work was completed, the one who rendered the work demanded additional payment, the defense raise was under 1724 in order that a claim for additional payment for the additional work, the agreement for the additional work must be in writing and the changes should be authorized in writing SA: The suggested answer of UP will sustain the defense because of 1724; such change not being authorized in writing, the request was merely verbal then the claim may not prosper. RIGHTS AND OBLIGATION OF THE LESSOR As to necessary repairs of the thing lease, this is an obligation of the lessor, under the law the lessor is oblige to make the necessary repairs. Read: Gonzales vs. Mateo RIGHTS AND OBLIGATIONS OF THE LESSEE

Q: As to the relationship of the taxi driver with his operator, is this a contract of lease? A: SC, ruled that this is in fact a lease but not a lease of thing, but lease of service specifically an employment contract, this is because of the control of the operator over the taxi driver, as to when, what time the drive operates the vehicle.

Note: Two (2) favorite articles are 1649 pertaining to assignment of lease, and 1650 on sublease.

Note: Again, to distinguish lease contract from other legal relationship you have to consider the characteristic of the contract. The best way to remember the kinds of contract is to know by heart what are the real contract (mutuum, commodatum, deposit, pledge) and formal contract (antichresis, donation). Aside from that it may be safe to consider as a rule all the other contract as consensual contract, where no particular form is required except in exceptional case: e.g. sale of large cattle. As a rule lease, therefore is a consensual contract by mere meeting of the mind as to the object and to the consideration the contract is perfected.

Articles 1649 and 1650 would tell us that a lessee may not assign his right on the lease without the consent of the lessor however he may sublease the property in whole or in part even without the knowledge of the lessor as long as he was not prohibited from subleasing the premises.

Note: Lease of things is not essentially personal. Heirs of Fausto Dimaculangan vs. IAC. Upon the death of parties like death of lessee, the contract is not thereby terminated. The heirs of the lessee may continue to occupy the premises by virtue of the lease because it is not extinguish upon death of lessee. Characteristic of Lease of things ♦ Consensual Contract ♦ Onerous

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The question in the Bar may be as simple as may a lessee sublease the property without the consent of the lessor and what are the respective liabilities of the lessee and sublessee.

Read: Malacat vs. Salazar Frensel vs. Mariano TERMINATION OF THE LEASE BE: Discuss the effect of death of lessee, lessor, agent and principal. SA: In a lease of thing, death of the lessee does not terminate the contract. A contract of lease is not essentially a personal contract therefore upon the death of the lessee, it may be continued until the expiration of period of the lease by the heirs. (Case: Heirs of Dimaculangan vs. IAC) IMPLIED NEW LEASE Note: one of the most favorite in the bar exam. Requisites:

Faye Marie C. Martinez – Chato Cabigas – Jessica A. Lopez – Dian Rosapapan November 2008

1. The lease period has expired and 2. The lessee continues to be in possession of the lease for at least 15 days from the time of the expiration of the lease and 3. No notice to the contrary from the lessor and the lessee. BE: Pertain to contract of lease entered into for period of 3 years Jan 1, 81 up to 1984. Rentals were paid on monthly basis. It was stipulated that the lessee has the option to buy property at a certain price within a certain period (option to buy). Despite the lapse of the 3 year period, the lessee did not exercise the option, but continued to be in possession of the property and paying the monthly rentals and the lessor accepting the same. This continued until June 1984 when the lessee stated that he would now buy the property in accordance with the option to buy. The lessor refuse, claiming there was no more option. Was the lessor correct? Yes. Was it correct to say that there was extension of the lease under the facts? SA: Yes, there was an extension known was implied new lease. However, with the implied new lease it does not mean that all the terms and condition of the contract in the original lease continue also. First as to the term, under the law, the term of the renewed lease would not be the term agreed upon but only be of a period depending on the manner the rentals are paid. If the payment is on annual basis, the renewal would only be for a year and if monthly payment of rental is made, the implied new lease would only last for 30 days. As to the option, it was renews, SC held, in an implied new lease, only those terms and conditions which are germane in a contract of lease are deemed renewed as to the rest like option to buy, will not be considered renewed. Even in the facts of the case itself, it was stipulated that the option may be exercise within the period agreed upon (3 years).

liable by estoppel because he cloth Flores with full power as if he has the authority to buy those items necessary for the administration of restaurant aside from that Mack was able to prove pieces of evidence like in the lease agreement over the building where restaurant was located and comes the owner of the restaurant as lessee and Flores sign as an agent of the lessee with all this the Held: The owner of the restaurant is liable under the Principle of Estoppel. 2. Apparent / Ostensible Q: A letter was sent by B to X, informing X that A has the authority to enter into a contract with X specifically to obtain goods from X, like copra, abaca which goods will be sold by A, after the sale a portion can be deducted as a commission and the restaurant to be delivered to X. after a certain period, the goods obtain by A from X remained unpaid. In other words A will get the goods from X, A did not deliver the proceeds of the sale. X demanded payment from B. The defense of B was as of that moment from that certain period he has already revoked the authority of the agent and therefore be bound by any contract entered into by A in representation of B with 3rd person. Is the claim of B tenable? SA: No. 1873 so far as 3rd person are concern, this notice itong letter nya kay X remain in full force and effect until it is rescinded in the same manner it was given. 3 Actual agency The law itself classify actual agency into as manner of creation, express / implied. There is no problem with express agency.

3. 4.

AGENCY Definition 1868, 1874 and 1878- formalities Coz a form is required for the validity or for the enforceability of the contract entered by the agent-1878, 1874 1892- pertain to appointment of the substitute- effect- may the agent nonetheless be held liable for the loss that incurred by the principle as the result of the appointment of the substitute. Other provisions pertain to the right and obligations of commission agent or more importantly the guaranty commission agent-1907-1908 Effect of death-1919, 1930 and 1931 Either of the agent or principal Revocation-kind of agency- agency coupled with interest-1927

Express agency-it is a kind of agency the consent of both parties were expressly given. Implied agency- were the consent of one parties was only impliedly given on the part of principal- the leading case is Dela Pena vs. Hidalgo

Q: If a person was asked to administer the property of another to sell the property, and he said nothing- by his silence, by his inactions may be deemed accept agency? A: Not necessarily. Under the law, you have to make distinction to determine the scenario under which the said appointment was made, okie! The law would say when the 2 parties are absent, and when the 2 parties are present. When 2 parties are absent- 1 is in Manila and the other is in Cebu. When 2 parties are present- present in the same room (a) 2 persons present- present in the same conference hall (b) If 2 persons are in different place, one in Manila and the other one in Cebu

BE: A asked her best friend to B buy for her certain items in a grocery store. Is there a nominate contract created between A and B? SA: Better answer, if B agreed to the request of A, an agency relationship has been created, a nominate contract has been created.

Compensation As to the compensation in a contract of agency consider if the agency is gratuitous or onerous.

Read: Quiroga vs Parsons

Read: 1909 - the liability of the agent for damage to the principal due to his negligence or even bad faith or fraud committed against the principal may be mitigated if the agency is gratuitous in character.

Distinguishing contact of agency from other contract and other legal relationship. Consider the characteristics of a contract of agency as a contract and as a legal relationship business organization. Read:

Lepanto Mining case Mariano case

Some authors would classify contract of agency into three, not concepts. 1. Actual agency

2. 3.

Apparent / dormant Estoppel

1. Estoppel Kang case Facts: Flores appears to have full control of a restaurant, owned by Kang and in the administration of the restaurant he bought certain items from Mack, items needed for restaurant but a portion / price to be paid, not by Flores, so Mack ( seller ) went after the owner of the resto. The only defense raised by the owner was that Flores was not his agent. Take note: it is very difficult to prove actual agency, because an agreement between 2 persons, eh kung verbal lang ang agreement dun, how would you be able to prove, the owner of the restaurant can be held

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BE: Scope of authority of the agent whether it only pertains to the acts of administration or acts of anu yun dominion? SA: Under this provision 1877 if the agency is comes in general term this only comprise acts of administration even if the principal beholds power to the agent or it is stated that the agent may execute any act as may be deemed appropriate. That will still be an agency pertaining to act of administration. As to form, the law is clear that it may be oral however the law may require a particular form. ESSENTIAL ELEMENTS OF A CONTRACT OF AGENCY Read: Rallos case The SC enumerated the essential elements or the alleged essentials elements of a contract of agency.

1. 2. 3. 4.

Consent Execution of the juridical act- subject matter Acts within the scope of authority The acts must be in representation of the principal

Faye Marie C. Martinez – Chato Cabigas – Jessica A. Lopez – Dian Rosapapan November 2008

This are allegedly the essential element again some authors would discuss in their books with due respect to the ponente of this case, medyo mali mali ang enumeration, first there was nothing mention about the cause or consideration as a contract, a contract will never validly have a cause or consideration well it may be liberality pwede naman cause yan but there must have a cause if only for that the enumeration be defective more than that that last 2 mention that the agent act within the scope and that the agent must act in representation are not essential elements of a contract of agency they are actually obligations of agent which means they have been already perfected of contract of agency, no obligation will arise kung void ung kontrata kung wala pang valid contract, so essential elements are only those elements necessarily for the validity of the contract, once the contract is valid then the obligations will arise even if the agent acted outside the scope of authority does it mean that the contract of agency is void? Of course not, he can be held liable for acting outside the scope of authority or if he acted not in contemplation of the principal, does it mean that there was no agency at all? Of course not, there is a contract of agency. Under the rule the consequences if the agent did not act in the representation of the principal. PARTIES Going to the consent of the parties, well 1 author claims that there are 3 parties in a contract of agency that is totally wrong! There are only 2 parties in a contract of agency the principal and the agent, however in problems involving agency there may be there would be normally three persons involve, the third persons with whom the agent transacted, no longer part of the concept agency, this is the agency, the contract entered into between by the principal and the agent, but when the agent entered into a contract it may be a sale, lease or other contract and the 3rd person is not a party to this contract, the 3rd person is a party to a 2 nd contract, that again the parties is the principal and the agent, they may be called in another names the principal- employer, constituent, chief; the agent may be called attorney-infact, proxy, representative. OBJECT As to the object of the contract of agency - this is the execution of juridical act. FORM Agency may be oral. It does not matter, the contract of agency would be valid but the parties even if it is by verbal agreement, however any effect of the verbal authorization, the agreement between the agent and the principal if it was only verbal will be in the contract entered into by the agent. Read 1874 Contracts which require a SPA – see codal Jimenez vs. Rabot Facts: Jimenez was the owner of a certain parcels of land in Pangasinan, he was then in the province of North Luzon, he sent a letter to his sister asking his sister to sell one of his parcels of land and with that letter the sister indeed sold one of his parcels of land to Rabot, however the sister did not remit the proceeds of th sale, binulsa lng nya, so when Jimenez went back to Pangasinan, he demanded the property, yun ay na kay Rabot na, so he filed an action against Rabot, the defense raised by him that the letter would not be sufficient a power of attorney to bind him as a principal the sale of the parcels of land. Held: A letter suffices as a power of attorney. When you sent a letter to your brothers or sisters you do not notarize first.

BE: A authorize B to borrow sum of money from any bank and he also authorize B to mortgage specific property specific parcel of land to secure that loan what B did he borrow money for himself from a certain bank without disclosing his principal, later on he defaulted the question was can the bank go after the principal? A: Of course No, the contract is between the agent and the bank only the principal has nothing to do with the contract, under the facts, the agent borrow for himself sya talaga, however if you have read the suggested answer, my 2nd paragraph to the effect that the bank can at least foreclose the mortgage they can after the property of the principal. If you remember the question, di tinatanong ng examiner can the bank go after the principal as far as the thing is concerned. The only question pertains to the payment of loan. Another thing of the suggested answer it is totally wrong, under the facts, the principal authorize the agent to mortgage the property for the loan that will be obtain by the agent in the name of the principal. Q: If indeed he mortgaged the land for a loan in his name, would that mortgage be valid? A: Definitely not. If he mortgaged it as a mortgagor the mortgage is void, the law requires that the mortgagor must be the absolute owner of the thing mortgage. Q: On other hand even if the agent mortgaged the thing on behalf of the principal, the principal is the mortgagor, would that be a valid and binding mortgage as against the principal? A: Also not, also his authority to have the property to mortgage to secure a loan, not to secure any other persons loan and that therefore it cannot be within the authority of the agent and therefore any foreclosure of such mortgage will not prosper. Q: If the agent acted within the scope of his authority and in representation of the principal, who will be bound in that such contract? A: Aside from the 3rd person, it will be the principal because again the agent merely representing the principal. However, it is possible for the agent himself to be bound in such contract be held liable under such contract? A: Yes, one if he expressly binds himself to that contract. Read: Domingo vs. Domingo Read: US vs. Reyes Obligation to render an accounting If this time the principal authorize the agent to sell his car for 300k, the description of the car was mention in the SPA at least 300k however before the agent would sell the car, the principal called him by phone instructed him to sell the cart in QC to a member of IBP member chapter, instead of selling the car in QC IBP member chapter he sold the car in Manila not known by the principal for 300k, (1) Can the principal recover the car from the buyer if that car is already delivered to the buyer? (2)Any remedy provided by the law to the seller or to the principal?

1.

Obligations of the Agent:

1. 2.

To carry out the agency In carrying out the agency, there are 2 obligations of the agent, he should always remember: a. to act within the scope authority b. to act in behalf of the principal

a. Acting within the scope of authority Q: how would you know if the agent was acting within the scope of authority? A: Be guided by the power of authority. In fact as a 3rd person, you can demand the power of authority, so that you will know whether in fact he had authority to enter into a contract but sa totoo lng there are some SPA which would be subject of the case up to the SC pertaining to the scope of authority of the agent. Read: Linal vs. Puno

2.

It depends, if that buyer has no knowledge of that instruction of the principal then he has all the right to retain the car and that sale will be valid and binding as against the principal. As provided under Art. 1900 so far as 3rd persons are concerned they only rely on the SPA as written they have no obligation to inquire on the special instructions made by the principal which are not mention in the SPA, eh wala naman dun sa SPA na it will be sold to an IBP member chapter in QC. Go after the agent or damages if there is any damage sustain by him for his failure to follow the instructions of the principal.

Read: 1898 Appointment of Substitute Read: Substitute vs. Sub Agent (Prof. De Leon’s book)

PARTNERSHIP BE: A, using all his savings in the total amount f Php2,000, decided t establish a restaurant. B, however, gave Php4,000 as “financial assistance” with the agreement that B will have 22% share of the profits of the business. After 22 years, B filed an action to compel A to

Read: Insular vs. PNB

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Faye Marie C. Martinez – Chato Cabigas – Jessica A. Lopez – Dian Rosapapan November 2008

deliver to him his share in the profits claiming that he was a partner. A denied that B was his partner. Is B a partner of A? SA: Yes, B was a partner in the business because there was a contribution of money to a common fund and there was an agreement to divide the profit among themselves. Atty. Uribe: I do not agree with the answer. I’d rather agree with the alternative answer. WHY: In the alternative answer as can be seen from the facts, B gave Php4,000 only as a financial assistance. It was not a contribution to a common fund. As such, he actually became a creditor of A. Therefore, he did not contribute to a common fund. Q: What about the stipulation that B will have 22% share of the profits? A: The law on partnership is very clear that a sharing in the profits does not necessarily does not result in a partnership contract because the sharing of the profits may only be a way of compensating the other person, in fact that can be a mode of payment of the loan. Kasi yung loan, supposedly pwede payable every month with a fixed amount. But mas maganda ang agreement na ito, 22% of the profits, so that if walang profit sa isang taon, wala munang bayad. ‘Di ba that’s reasonable agreement. Only kung may profit, saka lang babayaran. Kumbaga, friendly loan ito. The sharing in the profits as expressly provided by law does not necessarily result in a partnership contract. Thus, it can be said that really B was not a partner but is actually a creditor of A. Definition of Partnership Q: What if two or more persons agreed to put up a partnership but they never intended to divide the profits among themselves, would that still be considered a valid partnership contract? A: Yes. Under the second paragraph of the article, two or more persons can form a partnership for the exercise of a profession. Partnership vs. Co-ownership Consider the essential features: CREATION Partnership is obviously created by agreement. Co-ownership may be created by agreement, but it may also be created by operation of law. In fact, by express provision of the law, the fact that there is co-ownership does not necessarily mean that there is a partnership existing between two persons. Ex.: two persons may inherit a property from their father or mother, and under the law, they may be considered as co-owners of the same property. PURPOSE Partnership: either to divide profits or exercise a profession. Co-ownership: Common enjoyment of the thing or right owned in common; merely to enjoy the property, thus they may have different purposes. A very important feature of partnership in relation to co-ownership, it has a juridical personality, separate and distinct from the individual partner which is obviously not present in co-ownership. In co-ownership, they have their respective personalities and no new personality will be created. POWERS OF THE MEMBERS Partnership: Unless otherwise agreed upon, each partner is an agent of the other partners and of the partnership. Co-ownership: As a rule, a co-owner cannot act as an agent of the other coowners unless otherwise agreed upon between the co-owners. PROFITS: Co-owner: Mas malaki ang profits, mas malaki ang interest. But not necessarily in partnership, because the sharing in the profits may be stipulated upon by the parties. Pero kung walang stipulation, it may be based on the capital contribution.

Consent of the contracting parties: The rules in contract would be equally applicable but, just like in sales and lease, there are persons who are prohibited from entering into a contract of partnership. Object To engage in a lawful activity. Q: If the object is to engage in a lawful activity, necessarily the partnership is valid? A: No. There are specific business activities wherein the law would require particular business organization which may engage in such business activity, specifically the Corporation Code which provides that only corporation may engage in insurance and banking business, therefore there can be no partnership engaging in such business: banking and insurance. Cause The promise of each partner to contribute either money, property or industry. Formalities Q: If the agreement of the parties to a contract of partnership was only a verbal agreement, would that be a valid and binding contract? Will there be a juridical personality created? A: As a rule, yes. Even if under Art. 1772, the law provides that every contract of partnership, having a capital of more than Php3,000 or more, shall be in a public instrument and must be registered with the SEC. The 2nd paragraph of Art. 1772 provides that despite failure to comply with the requirements in the preceding paragraph, this is without prejudice to the liability of the partnership and the individual partners to third persons. From that article alone, it is clear that despite non-compliance with the requirements of the law as to form, there is a partnership created, because this is without prejudice to the liability of the partnership (kung may partnership). But more directly, Art. 1768, the law provides, the partnership has a juridical personality separate and distinct from that of each if the partners, even in case of failure to comply with the requirements of Art. 1772, par.1. After all, a verbal partnership contract is valid and binding between the parties. Consequences: separate and distinct personality

1.) 2.) 3.) 4.)

It can own its properties; It can sue and be sued; It may be found guilty of an act of insolvency; It may be dissolved for committing an act of insolvency.

Read: Campos-Rueda vs. Pacific Commercial CLASSIFICATION OF PARTNERSHIP: As to the object of the partnership is only to determine whether a person may enter such partnership, there is a need to distinguish whether a partnership is a UNIVERSAL or PARTICULAR partnership 2 Kinds of Universal Partnership: 1.) Universal Partnership of Property 2.) Universal Partnership of Profit

Consent Object: to engage to a lawful activity, whether a business or profession.

CLASSIFICATION OF PARTNERS: According to the liability of the partners:

ESSENTIAL ELEMENTS OF PARTNERSHIP Like any other contract, it should have the three essential requisites:

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Cause or consideration: the promise of each partner to contribute money, property or industry

TERM OF PARTNERSHIP: Q: If the partners failed to fix a period, does it mean that the partners agreed a partnership at will and may be dissolved at any time without any liability so long as they acted in good faith? A: No, because a partnership may be a partnership for a particular undertaking even if no period was fixed by the parties. In one case, a partner, dissolved a partnership, claiming it to be a partnership at will, the partnership being involved in a bowling business. The SC ruled that even if the partners failed to fix a period, the partnership cannot be considered as a partnership at will because there was a stipulation in the partnership agreement that the debt of the partnership shall paid out of the profits that will be obtained by the bowling business. Thus, after all, it cannot be dissolved at will, for the debts will have to be paid. Therefore, the SC ruled that the said partnership is a partnership for a particular undertaking.

Q: Will death extinguish co-ownership? A: No, Kapag namatay ang isang co-owner, his heirs will be the co-owners of the surviving co-owners at pwedeng tulou-tuloy lang yan. However in partnership, if it is a general partnership, if one of the partners dies, the partnership is dissolved.

1.) 2.)

3.)

Faye Marie C. Martinez – Chato Cabigas – Jessica A. Lopez – Dian Rosapapan November 2008

1.) General 2.) Limited This classification is relevant only in limited partnership.

just cause, so long as it was done by those partners having controlling interests.

Note: A limited partner cannot be held personally liable for partnership obligations but there are exceptions As to the contribution: 1.) capitalist 2.) industrial

3 Obligations of the partners: 1.) To make good his promised contribution; 2.) Fiduciary duties; and 3.) To participate in the losses incurred by the partnership business.

Q: An industrial partner, may be a general partner? A: Yes. A capitalist partner may either be an industrial or general partner. Q: May an industrial partner be a limited partner? A.: No. A limited partner can only contribute money or property. He cannot contribute service. Q: But can a partner be both capitalist and industrial? A: Yes, he can contribute both money and industry. He can be both capitalist and industrial and there will be consequences to that. PROPERTY RIGHTS 3 Major property rights of a partner: 1.) right in specific partnership property; 2.) interest in the partnership; and 3.) the right of the partner to participate in the management of the business of the partnership. Property rights considered as minor: 1.) right to have access to the books of the partnership; 2.) right to demand for a formal accounting. TYPES OF MANAGEMENT: 1.) Solidary Management: -without specification as to each other’s duties or without stipulation that one of them shall act without the consent of all. 2.) Joint Management: -two or more managing partners with the stipulation that none of them shall act without the consent of all others. The incapacity of one of the partners, or his absence will not be a valid ground not to obtain his consent to a contract. It has to be by unanimous consent, unless, in obtaining his consent (he is absent or incapacitated) it would result in irreparable damage to the partnership, then the consent of the absent or incapacitated managing partner may be dispensed with. This is also known as management by consensus. 3.) If there was management arrangement agreed upon between the partners, each partner is considered as an agent of the partnership. Into these arrangements, if only one partner is appointed as a manager, he can execute any acts of administration even if opposed by all the other partners. Ex. In a partnership of which the business is into buying and selling cars, the managing partner decided to buy a vintage Mercedes Benz, to the opposition of the other partners for they consider it bad investment, will the decision or the act of the managing partner in buying the said car bind the partnership? Ans.: Yes, because such act is merely an act of administration. The problem is, if the managing partner continues to not consider the sentiments of the other partners, he may be removed as a managing partner. The question now is, can he be easily be removed? Ans.: No. The requirements for the removal of a managing partner would depend on whether he was constituted as such in the articles of partnership or he was merely appointed as managing partners after the constitution of the partnership. If he was constituted as a managing partner in the articles f partnership, he can only be validly removed under two conditions: 1.) there has to be just cause; and 2.) by those partners having controlling interests. Absent one of these conditions, he cannot be validly removed. In fact, even if there is just cause, if the managing partner controls 51% of the partnership, he can never be removed. However, if he was appointed as a managing partner only after the constitution of the partnership, he can be validly removed even without

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OBLIGATIONS OF THE PARTNERS AMONG THEMSELVES AND AS TO THE PARTNERSHIP AND IN CASE OF NON-PERFORMANCE OF THE OBLIGATION

To make good his promised contribution: A. Money: In order to know the remedies that may be availed of by the nondefaulting partners and the partnership, it must be known first what was promised by the partner, whether he promised to contribute money, property or industry. If the partner promised to contribute money, for instance, the partners agreed to contribute Php1 Million with 4 partners, without an agreement as to respective amount to be contributed, the law provides that they will have to share equally. Thus, in this example, Php1 Million will have to be divided into 4 or the respective contribution will be Php250,000. If one partner failed to make good his promised contribution which is a sum of money, he can be held liable by the non-defaulting partners up to the amount promised plus interest. If no rate was stipulated by the parties, it will be the legal rate of 12%, because this is forbearance in money. Aside from paying the interest, which is unusual, not only will that defaulting party be held liable to pay interest, he will also be liable to pay damages. Normally, in obligations involving money, in case of damage incurred by another party, the liability will only be payment of interest. In partnership, not only will he be liable to pay interest, but also of damages. Remedies that may be invoked by the non-defaulting partners:

1.) 2.)

Specific performance- the other partners can compel him to make good his promised contribution. Dissolution- may be an option by the non-defaulting partners, if that is the only amount that they are expecting for the partnership.

B. Property: If a partner promised to contribute property, it must be determined as to what was really contributed: was it the property itself or the use of the property. If it was the ownership of the property that was contributed then he would have the obligation to deliver and transfer ownership, aside from that, under the law, he would have the obligation to warrant the thing. Q: Before the delivery of the thing to the partnership, who will bear the loss? A: The partner will bear the loss. The partnership will bear the loss when the thing is already in its possession C. Industry Q: If a partner fails to render service as promised, will specific performance be a remedy? A: Definitely not. It would be a violation of his rights against involuntary servitude. The remedy would be to demand for the value of the service plus damages. It can be easily done because there is an industry rate. Fiduciary Duties: The duty to observe utmost good faith, honesty, fairness, integrity in being with each other. This duty commences even during the negotiation stage. Test to determine whether there was a violation of this duty: Whether the partner has an advantage himself at the expense of the partnership. If he has such advantage at the expense of the partnership, then there is a breach of the fiduciary duty. There need not be a proof of evil motive so long as he has this advantage at the expense of the partnership. This duty lasts, normally, until the termination of the partnership. Q: May a partner may be held liable for breach of fiduciary duty even after the termination of the partnership? A: Yes. The SC held that even if the act of a partner was made after the termination of the partnership, if the foundation of that act was made during the existence of the partnership, that can still be considered as a breach of

Faye Marie C. Martinez – Chato Cabigas – Jessica A. Lopez – Dian Rosapapan November 2008

fiduciary duty. In other words, pinaghandaan na nya yun act during the existence of the partnership, however, it was executed only after the termination of the partnership.

Q: If one of the partners in a partnership was elected a Senator, would this dissolve the partnership by operation of law? Ans.: No.

Participate in the Losses: Q: What will be the share of the partner in the losses incurred in the partnership? Ans.: Consider first whether there was a stipulation as to losses or there was no stipulation.

Q: Even if it is a partnership of lawyers or a law office? Ans.: No.

OBLIGATIONS OF PARTNER RE: 3RD PERSONS Q: When would a contract entered into by a partner bind the partnership? Ex.: If a partner went to a furniture shop to buy furniture the of which is Php100,000, and such amount remained unpaid, can the seller demand payment from the partnership? A: It depends as to whether the contract was entered into in the name of the partnership, for the account of the partnership, under its signature, by a partner who is authorized to enter into that contract to bind the partnership. Thus, in this example, if in the agreement the buyer was the partner himself and not the partnership, that partner should be held liable, for the furniture was not bought in the name of the partnership. The problem, if the contract would be binding in the partnership, then would be, whether the partner who represented the partnership had the authority to bind the partnership. Normally, if a partner would enter into a contract, a partnership resolution is not necessary. Whether or not a contract would bind the partnership would depend on the nature of the act of such partner and the nature of the business of the partnership. Q: Concretely, if a partner bought a complete set of SCRA in the name of the partnership and signed by that partner, would that contract bind the partnership for the set was bought in the name of the partnership? A: It would depend on the nature of the act and the nature of the business of the partnership. In this example, the partner bought the set of SCRA, pero naman, and business ng partnership ay restaurant, hindi naman ata na i-bind nya ang partnership to such contract, ang negosyo nila restaurant.  But the seller would raise the defense, “hindi ko naman alam na restaurant yung business, e ang nagrepresent ng partnership si Atty. ABC, so akala law firm.” Is that a valid defense? Ans.: No. The SC would tell that the third party contracting with the partnership has the obligation to know at least the nature of the business of the partnership. In fact, he can demand for the presentation of the articles of partnership in order for the third party to know the nature of the business of the partnership. For, if this time, the partnership is a law office, and the partner bought a set of SCRA, that act of buying a set of SCRA will be considered apparently for carrying the business of the partnership the usual way. Therefore, that contract will bind the partnership. DISSOLUTION, WINDING UP AND TERMINATION These are three different concepts. Upon dissolution of the partnership, it is NOT DEEMED dissolved. It will still have to go through the process of winding up of the affairs of the business of the partnership before the partnership itself will be terminated. Q: When would there be a dissolution of a partnership? Under the law, there will be a dissolution if there is a change in the relation of the partners caused by any of the partners ceasing to be associated in the carrying on of the business of the partnership. That will result in the dissolution of the partnership. Again, if one of the partners ceased to be associated in the carrying on of the business of the partnership, that will result in the dissolution of the partnership. CAUSES OF THE DISSOLUTION 1.) Extrajudicial; 2.) Judicial. Extrajudicial causes: 1.) voluntary; 2.) involuntary. Judicial causes are necessarily voluntary because it is by application. INVOLUNTARY CAUSES

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Judicial Causes: Grounds: 1.) Insanity or incapacity: -The courts require that it should be permanent in character; and -such incapacity or insanity must affect the performance of such partner of his obligations with respect to the partnership business. In other words, kung wala syang pakialam sa management ng business ng partnership, insanity or incapacity is not a valid ground. 2.) Gross misconduct: a.) wrongful expulsion; b.) if one partner would refuse to allow another partner in the management of the partnership business, if he has such right to participate in the management ; c.) if the managing partner would refuse to distribute the profits of the partnership when there is such obligation to distribute the profits; d.) misappropriation of the income of the partnership business. Q: Upon the dissolution of the partnership, and there were assets left, how will these be distributed? To whom these assets be given? A: As far as partnership assets are concerned: 1.) Partnership creditors who are not partners. 2.) Partnership creditors 3.) If there are remaining assets, to the capitalist partners;

4.)

Excess profits - based on their agreement as to profits. TRUST

2 KINDS: 1.) Express 2.) Implied Implied Trust: 2 Kinds: 1.) resulting trust; 2.) constructive trust The classification of trust into two kinds (express and implied) and implied trust into two kinds (resulting and constructive) would be relevant in two concepts: 1.) applicability of the parole evidence rule; and

2.)

prescription, specifically, acquisitive prescription.

N.B.: An express trust over an immovable may not be proven by parole evidence. This means that implied trust over an immovable may be proven by parole evidence or express trust over a movable, may be proved by parole evidence. EXPRESS TRUST Q: May an express trust over an immovable be proven by mere testimony of the witness? A: Yes, if the lawyer of the other party did not object to the presentation of the witness. IMPLIED TRUST Resulting Trust BE: A and B, brother and sister respectively, inherited two identical parcels of land. For purposes of convenience, B, sister of A, agreed to have the land registered in the name of A. However, when the parcels of land were registered in the name of A, A sold one of the parcels of land to a buyer in good faith and for value. Can B recover the land from the buyer? What would be the remedy of B? SA: This question clearly pertains to a resulting trust. This is specifically, Art. 1451 of the NCC. B cannot recover the land from the buyer. As discussed in Sales, a buyer who had bought the property from a seller who has no right to sell, but he has apparent authority to sell, who appears to be the owner and the buyer bought the property in good faith, he will acquire ownership over the thing even if the seller has no right to sell.

Faye Marie C. Martinez – Chato Cabigas – Jessica A. Lopez – Dian Rosapapan November 2008

B’s remedy would be to go after her brother for breach of trust in selling the property without her consent. Resulting trust includes Articles 1448, 1451, 1449, 1450,1452,1453,1454. Constructive Trust: BE: A applied for the registration of a parcel of land in his name. However, he was called in New York to be a chef in a hotel. So, he asked his cousin to follow up his application for registration of land while he was in New York. Instead of ensuring the registration of the property in the name of A, he had the property registered in his (cousin) name. After which, he sold the property to a thi4rd person who bought the land relying on the TCT. When A returned to the Phils., he learned of what his cousin had done. May A recover the parcel of land from the 3rd person who bought the property in good faith and for value? A: No. N.B.: Art. 1456, 1455. Q: In constructive trust, may the trustee acquire the property by prescription by mere lapse of time, without repudiation? A: Yes.

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Faye Marie C. Martinez – Chato Cabigas – Jessica A. Lopez – Dian Rosapapan November 2008